We model entrepreneurship and the emergence of firms as an outcome of simultaneous bidding for labor services among heterogeneous agents. What distinguishes our approach from prior work is that occupational choice and job matching are determined simultaneously, so that the opportunity costs of entrepreneurs are accounted for. Those who are relatively unmanageable, while possibly excellent managers themselves, become entrepreneurs. Entrepreneurs compete and create value by building efficient organizations and offering potentially well-paid jobs to others. While the entry of an additional entrepreneur typically reduces some individual wages, we show that it always raises the average wage and depresses the average income of incumbent entrepreneurs. This result may help explain the empirically low returns to entrepreneurship.

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doi.org/10.1016/j.euroecorev.2012.02.014, hdl.handle.net/1765/37297
European Economic Review
Erasmus Research Institute of Management

Roessler, C, & Koellinger, Ph.D. (2012). Entrepreneurship and organization design. European Economic Review, 56(4), 888–902. doi:10.1016/j.euroecorev.2012.02.014